Week 3

1
Week 3

• Supply Analysis, Equilibrium, Price Controls
  Elasticity

2
Supply Analysis

• Who are the Suppliers?
• What is their motive?
• Representation of Supply relationship.
• Relationship between price and quantity supplied.
• Influence of other factors.
• Change in supply versus change in Quantity
  supplied.

3
Equilibrium Model of Supply and Demand

• What is equilibrium?
• Mathematical derivation.
• What are Out of equilibrium positions called?
• What is expected to happen in such markets?

4
Changes in Equilibrium

• Factors that can change the equilibrium position
  are
• Changes in Supply
• Changes in Demand
• Changes in both
• Implications for Equilibrium?

5
Rent Control in New York City

• Percentage of Rent Controlled units in New York
  City
• Shadow Market?
• Rent levels in Rent Controlled areas?
• Vacancy Rates
• Homelessness

6
Price Floor Minimum wages legislation

• Minimum wage law started in 1938.
• Advocates of minimum wage laws support it as a
  measure to help the poor.
• Opponents reject this measure for several
  reasons.

7
Elasticity of Demand Supply

• Defined demand, Supply, Equilibrium changes.
• Major policy decisions and the concept of
  Elasticity.
• What does Elasticity measure?

8
Determinants of Elasticity of demand

• Necessities versus Luxuries
• Availability of close substitutes
• Time Horizon
• Several examples and puzzles explained

9
Elasticity and Revenue

• Define Total revenue
• Relationship between price, total revenue and
  elasticity.
• Talk about some more policy changes as explained
  by the above relationship.

10
Luxury Tax on Yachts

• Congress imposes a luxury tax on Yachts costing
  more than 100,000.
• What was expected of this proposal?
• What actually happened?

11
Measurement of Price elasticity of Demand

• Is slope a good measure of elasticity?
• Formula for elasticity?
• Midpoint formula measure
• Point elasticity and arc elasticity.
• Is elasticity same for a straight line demand
  curve?

12
Energy Crisis Elasticity

• El Paso and Energy Crisis
• Increased Demand for Energy
• What happens to Price?
• Why such a sharp rise in prices?